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00:00Ok, so recently we've seen a few interesting headlines about Apple.
00:08One was about them potentially making a single chip that would combine cellular, Wi-Fi and
00:13Bluetooth into one for the iPhone.
00:14And then the next day, there was a report that they're working on their own displays
00:18for the Apple Watch and the iPhone.
00:20And so I've been looking into this, I've been trying to figure out, is this a nothing
00:24deal or a massive deal?
00:26And so after a lot of research and time put into this, it turns out the best way to understand
00:29this is with a chart.
00:31See on the great scale of products that are made up of a bunch of different parts, there's
00:35a gradient.
00:36And on one half of that gradient is off-the-shelf parts.
00:38And on the other side is fully custom, vertically integrated parts.
00:42Now most smartphones these days have a lot of things like off-the-shelf camera sensors
00:46from Sony, like the Sony IMX585 that they'll just sell to anyone.
00:50There's a lot of displays out there made by Samsung and LG, but they're calibrated a
00:54bit after.
00:55You've all heard us talk about Qualcomm's Snapdragon 8 Gen 2, and Qualcomm has lots
00:59of chips that any smartphone manufacturer can buy, and also lots of smaller parts like
01:03fingerprint sensors and modems and radios from companies like Qualcomm and Broadcom.
01:07And typically only when you get to the most specific parts of the phone, like buttons
01:10and chassis, are you going to have custom parts for your phone.
01:14Now the iPhone's chart right now looks something like this.
01:17Now most people don't think about this much, but it's actually a cacophony of different
01:21parts.
01:22It's like a mixed salad of different things.
01:23The camera sensors, for example, for all intents and purposes, they're just off-the-shelf
01:27from Sony.
01:28The main supplier of the battery for the iPhone is a Chinese company called Amperex,
01:32but it is customized a bit.
01:33It's actually L-shaped and multi-celled to sort of fit maximally in the iPhone's design.
01:38And on the far end, they do have their chassis, but also the fully customized A16 Bionic,
01:43things like a Taptic Engine.
01:44So there is a big advantage to having parts that are more custom, especially in tech,
01:49because the main benefit that you get is optimization.
01:52Like for simplicity's sake, just imagine you're trying to build a triangular object and you
01:55want to fill its volume as efficiently as possible, but you only have square blocks
01:59off the shelf.
02:00You won't be very efficient with those parts, but if you can design all the parts yourself,
02:04well, now we're talking.
02:05That's peak optimization.
02:06So clearly you want the best, most well-optimized pieces for your thing, your product.
02:12You just saw what happened with the Macs, where they just switched from all those off-the-shelf
02:15Intel parts to those custom-designed Apple Silicon pieces.
02:18Like that was a massive improvement for Apple, and all their computers took a quantum leap
02:22forward in speed, in efficiency, in battery life.
02:26Like they're just hilariously better than ever before.
02:28And so the iPhone, well, the iPhone is huge for Apple.
02:31I mean, I know Macs are kind of popular, but most of Apple's revenue since it came out
02:36in 2007 has been from the iPhone.
02:39So Apple taking back parts of the iPhone turns out to be a very Tim Cook supply chain optimization
02:46story more than anything.
02:47So there were two stories in there, the displays and the chips.
02:50Let's start with the displays, because as you may or may not know, about 80% of iPhone
02:54displays are made by Samsung.
02:56Yeah, that's Samsung.
02:58And about 12% by LG display, and then the last 8% by others like BOE display.
03:02So right now that basically looks like Apple going to the display maker and going, hey,
03:06you guys make OLED displays, right?
03:08Okay, cool.
03:09We're going to need a bunch of those.
03:11We would like, you know, this curve radius and these certain cutouts for our little dynamic
03:15island, and we'd like a hundred million of them.
03:18So if you guys could do that, that would be great and we'll pay you up.
03:21And so that manufacturer, based on their own technology, will fill those orders using the
03:26displays they know how to make.
03:27And by the way, it's actually kind of super impressive that all of this happens so seamlessly.
03:31And on the other end, you don't really know if you have a display made by Samsung or LG
03:37or BOE in your iPhone.
03:38Now, if you want to get into the weeds, multiple sourcing is actually a pretty common tactic
03:42to reduce your reliance on one manufacturer.
03:45So sometimes off the shelf parts from several different companies are all pretty similar.
03:49So for something like the ambient light sensor, for example, who knows who makes that and
03:53who cares, right?
03:54Like, as long as we get a hundred million of them and they all fit in the iPhone the
03:57same way and they all work, then we're good, but it can easily go terribly.
04:01Like think about the big differences between the Qualcomm powered Samsung phone and the
04:05Exynos powered Samsung phone or the hardware lottery back when we had the Galaxy S8.
04:09Some of them had fast storage chips.
04:11Some of them had slow storage chips.
04:13So with these iPhone displays, there is some calibration work that needs to be done, but
04:17Apple has handled the sourcing so well that we never notice a difference.
04:21So the question now after seeing these headlines is what happens when we go from Apple's displays
04:25being slightly customized to being completely customized?
04:30Because now there's some rumors that Apple is trying to move from OLED to micro LED
04:35and really stepping up the design and quality of their displays and their watches and phones
04:39in the next few generations.
04:41So when I first read into this, I actually thought it meant like nothing.
04:45Like Apple doesn't really actually manufacture pretty much anything.
04:49They are a world-class design firm and they do a lot of research and design and development.
04:55But then at the end of the day, when they actually make the thing, they're not manufacturing
04:59the iPhone or the pieces in the iPhone, they get a company to do it.
05:02They might custom design the M2 chip, but they're getting TSMC, the actual foundry,
05:08to build the chip for them.
05:09But it turns out with micro LED here, Apple kind of wants to put in a ton of the development
05:14with the technology in their own facilities.
05:16You know, they've already started spending a ton of money on testing and evolving.
05:20See, that's the main difference.
05:21Before they would go to a company like Samsung or whoever, and they're already making OLED
05:26displays because that's their technology and they would make a couple customizations, but
05:30that technology can be sold to anyone else.
05:32Apple wants to do all the development and stuff for micro LED.
05:35So when they get to the end of the chain, they give the instructions to someone and
05:39they make it, but that's an exclusive Apple technology.
05:42So they're kind of trying to get ahead of and own micro LED.
05:46So that's why all these stocks dropped on this news.
05:49You know, when this reset happens, we don't really know which companies Apple will be
05:52going to, to manufacture them.
05:54Apple is still not going to make the display themselves.
05:56And theoretically it could be the exact same list of manufacturers, but word on the street
05:59is they're trying to strategically drop a certain Samsung.
06:03So we'll see.
06:04So that's the displays.
06:05Then there was also the story about the radios, which is a little more interesting because
06:09right now they're buying radios and their phones from Broadcom and Qualcomm, but also
06:15it's several different radios and different parts of the phone.
06:19So that rumor was not only that they're going to design their own chip, but that they're
06:21going to combine them all Wi-Fi, Bluetooth and cellular into one chip.
06:27So that to me is a little more interesting because obviously it's the same supply chain
06:30story of, Oh no, if you're Qualcomm or Broadcom, you don't really like that future.
06:34But also the possible efficiency gains, because right now there's a bunch of radios taking
06:38up different space in the phone, taking up a bunch of power in the phone.
06:42And ideally consolidating all them to one chip is really great for efficiency gains.
06:46Maybe it means battery life gets better.
06:47So yeah, both of these stories are of Apple using their mountains of cash to put into
06:54the upfront development costs and eventually reap the rewards of better products down the
06:59line for their products.
07:00That's essentially what's happening.
07:01And you better believe that there's going to be other companies who have the same idea
07:04and want to do a sort of a similar thing.
07:06They just might not have as much cash.
07:08So at the end of the day, who does this affect the most?
07:10Well, you can kind of look at it along the same lines as the Apple Silicon Mac transition.
07:14So if you're Apple, the main benefit you're going to get out of this is having a lot more
07:18control, which, you know, Apple loves that, but also being able to have better products
07:22at the end of the day.
07:23Great.
07:24Now, if you're one of the suppliers, if you're Qualcomm or Broadcom or Samsung, maybe, and
07:30you're about to lose a pretty big customer, yeah, then they're going to feel that.
07:35And then for us, the potential users, really at the end of the day, if they're successful
07:39with this, then that means having better products.
07:42And maybe we get mini LED displays starting in Apple watches at first, and then maybe
07:47in the iPhone, bigger display, and then even bigger ones later.
07:50Cool.
07:51But also, it'll be interesting with the competition, with the competitive environment and seeing
07:55what companies like Huawei and Xiaomi and Samsung and even Google will do along the
08:00same lines and following in their suit.
08:03Always fun to watch.
08:04Okay.
08:05Hopefully that helped us all understand it.
08:06It helped me.
08:07Thanks for watching.
08:08Catch you in the next one.
08:09Peace.
08:10Transcribed by https://otter.ai